Ladies and gentlemen, good day and welcome to the Q2 FY23 earnings conference call of HealthCare Global Enterprises Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not a guarantee of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I'll hand the conference over to Dr. B.S. Ajaikumar, Executive Chairman, HealthCare Global Enterprises Limited. Thank you and over to you, sir.
Thank you very much. I'm sorry about this disarray. As you were saying, I'd like to take few minutes to elaborate on new technology we have launched at our Center of Excellence, Bangalore. The technology is called Ethos from Varian, and it helps perform adaptive radiotherapy, and it's one of the first few in the world we have established here now at our center of excellence. Adaptive radiotherapy is something which continuously probes deep into the tumor and intelligently adapts the treatment to the tumor configuration using an AI platform. We can use the actionable information generated from it in the treatment of subsequent patients. Our area of interest is to collect proper data and see how a tumor responds to the treatment. This technology will finally help us answer some critical questions like when do we get a complete remission?
How long should the treatment span be? Questions that have challenged radiation oncologists for several decades. Being a leading cancer care provider, we are deeply engaged in academics and research, and I would like to highlight our seminal paper publications. Talking of academics, we are very proud to announce that we have fellowship programs of over 170 fellowships and different DNB programs, and all of our programs are in high demand, not only in Bangalore but also importantly in tier two, tier three cities. As we all know, in the past it was very difficult to ensure high-end training in tier two, tier three cities and also to find personnel who are willing to relocate and practice there.
We are very fortunate that now even in tier two, tier three cities like even Ranchi, Vizag, Aurangabad, we have fellowship programs, DNB students for training which undoubtedly augurs well for the community of these regions. We take research very seriously. To date, we have published close to 756 research papers. For October alone, we have nine publications and more importantly, a significant number of them have been a podium presentation. This clearly reflects our high quality of work, which is one of the best in oncology group globally, not just in India. We have some doctors who have also written key chapters in textbooks. We have won best paper awards and been involved in the clinical research abstracts. Recently, we participated actively in a radiation immune conference where we won one of the best awards for it globally.
This is just a gist of our achievements in academics and research. Going forward, we will continue to ensure a seamless integration of clinical services, academics and research such that all our breakthroughs serve the large purpose in the form of better treatment outcomes and improving the quality of life for our patients. The future is very bright for HCG across all aspects of cancer management. We will continue to strive hard to make cancer a chronic disease and bring higher success to HCG. Thank you very much. Now I hand over to Mr. Raj Gore, our CEO.
Thank you so much, Dr. Ajaikumar. A very warm welcome to all the participants on the call. We are delighted to share yet another quarter of good performance. We've been delivering growth on year-over-year basis as well as sequentially for the last eight consecutive quarters now, and this quarter is no different. We're happy to report another strong financial performance for quarter ended September 2022. Our consolidated revenue for Q2 stood at INR 442 crores, a growth of 19% on YOY basis. This strong revenue growth, coupled with our focused efforts on cost rationalization, have resulted in year-over-year margin expansion of 150 basis points, leading to adjusted EBITDA margin of 19.3%. Our adjusted EBITDA for Q2 FY 2023 stood strong at INR 81 crores, a growth of 28% over Q2 FY 2022.
As a result, our Q2 FY 2023 profit after tax on a pre-income tax basis stood at INR 10.5 crores, up by 137%. Over the last few quarters, we've been regularly informing you about our efforts to drive growth on several fronts, like enhancing our clinical services portfolio, increasing our clinician bandwidth and our go-to-market initiatives to increase reach online and offline, retail and institutional accounts, domestic and international fronts. We are making encouraging progress on all these fronts, resulting in a steady growth in new patient registrations. Higher utilizations across all modalities of treatment across metro and non-metro markets. While our mature centers continue to show higher than market growth rate, the growth strategies implemented for the emerging centers has started showing promising results. Kolkata and Mumbai centers has grown by 40% and 30% respectively on year-on-year basis in current quarter.
I'm happy to highlight here that our Jaipur center has more than doubled its revenue on a year-on-year basis, with more than 25% EBITDA margin. Our two linear accelerators there are nearing to full capacity utilization, and we will be commissioning one more linear accelerator early next year. Our differentiated and specialized cancer care, along with strong brand positioning, have enabled us to attain leadership position in 13 locations out of 18 locations where we are present. Going forward, we will continue to invest in HCG brand to make it the most preferred choice for cancer patients across India. We are very optimistic of improving our market share and strengthening our leadership position going forward. Now I would like to hand it over to Srinivasa Raghavan, our CFO.
Thank you, Raj, and very good morning to everyone. We have uploaded our Q2 FY 2023 financial results and updated investor presentation on the stock exchanges and company's website, and I hope everybody had an opportunity to go through the same. We are delighted to share that we have been able to grow our revenues ahead of the industry growth due to the trust and brand created for HCG. On the revenue front, our consolidated revenues for Q2 FY 2023 stood at INR 420 crore as compared to INR 350 crore in Q2 FY 2022, a growth of 19%. Our revenue for H1 FY 2023 stood at INR 828 crore, a growth of 23% year-on-year. Revenue split between HCG and Milann stood at 96% and 4% respectively for Q2 FY 2023.
Revenue growth for HCG stood at 21% year-on-year, and for Milann, excluding for COVID revenues in Q2 FY 2022, stood at 15% year-on-year. As mentioned in slide 25, revenue from the mature centers stood at INR 309 crores, a growth of 19% year-on-year basis for Q2 FY 2023. Revenue from emerging centers stood at INR 95 crores, a growth of 26% year-on-year for Q2 FY 2023. We are delighted to state that our emerging centers are inching towards maturity and are seeing good traction across geographies. I now request your attention to slide 26, where we have disclosed our operational parameters across our mature network and emerging centers for Q2 FY 2023. Our company-wide AOR stood at 66.4% and AOR for mature versus emerging centers stood at 65% and 69.9% respectively.
Higher occupancy for emerging centers is due to 72% of beds were operational in new centers. AOR and capacity beds stands at 57%. Our ARPOB on company level stood at INR 36,940, and our ARPOB from mature centers stood at INR 39,684, and for emerging centers stood at INR 30,145. The de-growth of AOR in our emerging centers were majorly attributed to a couple of centers in the emerging markets growing at a very fast pace with higher share of institutional business as compared to business from out-of-pocket patients. However, we believe this is a temporary phenomenon and should stabilize, and we should see increasing ARPOB from our emerging markets as well. Across geographies, we have given our revenue breakup in slide number 27. Jaipur grew by 205%. Revenue from Rajkot grew by 80%.
Mumbai grew by 30%. Bangalore Center of Excellence grew by 35% year-on-year for Q2 FY 2023. Our Milann business is also doing well. Revenues have increased by 15% in Q2 FY 2023 on YOY basis, excluding the vaccination revenue for Q2 FY 2022 on a like-for-like basis, and new registrations grew by 14%. On the EBITDA front, our consolidated reported EBITDA stood at INR 74.7 crores as compared to INR 61.7 crores in Q1 FY 2023, a growth of 21%. Reported EBITDA for H1 FY 2023 stood at INR 146.9 crores, a growth of 30% year-on-year. Adjusted EBITDA for Q2 FY 2023, that is after adjusting the one-time value creation cost and adjustment of ESOP expenses stood at INR 81 crores as compared to INR 63.9 crores in Q2 FY 2023, a of 28%.
Adjusted EBITDA margins stood at 19.3% as compared to 18% in Q2 FY 2022, a growth of 130 basis. Adjusted EBITDA for H1 FY 2023 grew by 39.6% year-on-year with margins of 18.9%, a growth in margins of 230 basis. We have also given bifurcation of EBITDA across mature and emerging centers, and I would request the participants to view slide number 25 for further detail. On profit after tax, we have been delivering positive PAT for the last thee quarters now. PAT for this quarter stood at INR 7.4 crore as compared to INR 0.8 crore in Q2 FY 2022. H1 FY 2023 PAT stood at INR 13.4 crore as compared to a loss of INR 8.7 crore in H1 FY 2022.
Our PAT pre-Ind AS adjustments for Q2 FY 2023 stood at INR 10.5 crores as compared to INR 4.4 crores in Q2 FY 2022. As for H1 FY 2023, pre-Ind AS adjusted stood at INR 19.7 crores as compared to a loss of INR 1.5 crores in H1 FY 2022. ROCE for matured networks stood at 20% annualized for H1 FY 2023 as compared to 24.8% in FY 2022, a growth of 460 basis points. ROCE before corporate allocations for matured centers stood at 24.8%. ROCE for emerging centers stood at -4.9%, annualized for H1 FY 2023 as compared to -8.3% in full year FY 2022. This is again an improvement of 340 basis points. ROCE before corporate allocations for emerging centers stood at -0.9%.
Our net debt position excluding capital leases as on 30 September stood at INR 211 crores as compared to INR 190 crores as on 31 March 2022. Our expansion of existing facilities at Ahmedabad, phase II and Whitefield extension of Bangalore COE is on track. Total planned CapEx for Ahmedabad is INR 85 crores. Expected date of operations being Q1 FY 2025, and for Bangalore COE is INR 25 crores. Expected date of operations being Q4 FY 2024. With this, I would now like to open the floor for question and answer.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two.
Oh, yes.
Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. A reminder to the participants, anyone who wishes to ask a question may press star and one. The first question is from the line of Karan from Sunara. Please go ahead.
Hello. Hi, sir. Am I audible?
Yes, you are. Thank you.
Sir, my first question would be on the INR 5 crore consulting cost that we booked in Q2. Can you just, sir, give us some color on where this INR 5 crore consulting cost has been spent and what kind of benefits are we going to see from this? That's my question number one, sir. My question number two is that we see some sequential decline in our emerging centers revenue, and some decline in ARPOB as well. Can you just give us some more color on how do we see this shaping up for us and what exactly are we doing in our Bombay and Kolkata center? You know, we said that we're going to get new talent in and a new surgical head over there.
Can you give us some color on both of these centers as well? Thank you, sir. That's it from my side.
Thanks for the question, and I'll take the first question. Regarding this INR 5 crore that we are talking about, this is regarding the value creation activities that HCG has embarked upon. We are working on two things. One is, you know, how do we drive productivity and efficiency across the system. That is one line of activities. The second area that we are working on is on the digital front as to how we can use technology platform and digital platform to drive revenue. These are the two activities that we have embarked on. As we speak, the progress is happening, and the part of INR 5 crore is towards these activities.
In terms of your question, what kind of benefit this would kind of entail or result in, we expect this should result in the next year, profitability overall EBITDA improvement of about 100 basis points-150 basis points, basically.
Got it.
Margin. On the EBITDA margin.
Got it.
On the second part of the question, Raj would like to answer.
If I understood your question, one was about emerging centers ARPOB. Srinivasa mentioned in his opening remarks that you know when you open a new hospital, the first goal is always to get the utilization up on different modalities. Usually you know you drive more institutional business. You know quarter on quarter that mix sometimes can change between different hospitals. We're not concerned about it. We think it's a one-off, and it will get back on track going forward. Regarding you know can you repeat the third question that you had?
On our strategy in both Mumbai and Kolkata centers, sir. Yeah. Yes, sir.
You know, I've discussed in the past also, Kolkata and Colaba in Mumbai are our newest centers. You know, as soon as COVID went away, we started doing our go-to-market initiatives. We started increasing our clinician bandwidth, improving our clinical services portfolio. You know, those are showing results. As I mentioned in my opening remarks, Kolkata has grown 40% year-on-year. Mumbai hospitals have grown 30% year-on-year. We're very confident that, you know, as they, as you know, in subsequent quarters, we will continue that growth momentum.
Okay, sir. Just to follow up on the consulting costs, will we see this INR 5 crore continuing in Q3 and Q4 as well, or will this now start trending on a downward trajectory in Q3, Q4?
It will start coming down. By end of this financial year, we expect it to go away. In following year, next financial year, this will not be there. That's why we, you know, identified it as a one-time separate expense.
Okay, sir. Thank you. Thank you. That's it from my side.
Thank you. A reminder to the participants that anyone who wishes to ask a question may press star and one at this time. The next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas. Please go ahead.
Yeah, good morning, sir. Thanks for giving me the opportunity and congrats for good set of numbers. My question is on margin front. Of the total CapEx, medical equipment, how much is the imported equipment? Because what I'm trying to understand is because of this rupee depreciation, will it have any impact on your cost element and that might result in you know, margins coming lower in the coming quarters?
No, as far as the rupee is concerned, there are two things. We don't see any margin impact because the agreement we have with some major suppliers are, as we have already indicated in the past, the pay per use model. We also have, we do earn a lot of foreign exchange, which is a natural hedge. Because of these two things, we don't see any margin impact from the acquisition/procurement of equipment. Secondly, we do not have any dollar exposure.
Okay. Just to understand the question, a previous participant asked about the ARPOB remaining flat. This is like a one quarter this impact. You might see ARPOB coming in better in the subsequent quarters?
Absolutely, Kaustubh. Thank you for asking that question. See, emerging centers is a bucket. You also have Mumbai there. You also have Kolkata there. Kolkata ARPOB is almost close to INR 50,000, you know, per day. Mumbai ARPOB is in mid-50,000s, right? As these two centers, these three centers, two in Mumbai and one in Kolkata, continue to grow in terms of their contribution to total revenue of emerging centers, the ARPOB will, you know, start going higher and higher in subsequent quarters. In addition to that, these are also the two locations where we will get, you know, higher international business there compared to other non-metro locations. That's another lever that we have to drive price realization as well as ARPOB.
Thanks. One last one, if I can.
Usually what we do, Kaustubh, usually the playbook for new hospital commissioning is you open the hospital, first you go for footfalls, first you go for higher occupancy, higher utilization on different modalities. You create a you know significant number of treated patients to drive word of mouth, and then you start optimizing different mixes to drive your realization ARPOB margin. We are in that journey right now.
Right, sir. Thanks for the understanding. My last one is on, as you said, in your initial comments, that patient registration is one of your key driver in terms of occupancy. On year-on-year basis, can you give us some idea what was the increase in the patient registration? Because word of mouth and whatever, you know, technology you are bringing in. That will also help you to have more and more registrations going ahead. Any understanding on how it was in this quarter and, any, you know, expectation in the quarters ahead?
On a YOY basis, last quarter we saw NPR registration growth in lower teens, close to 11%, 12%. At a network level, obviously it will vary from the geographies of the majority of the centers.
I think another thing is we are not seeing the full impact of our.
Other initiatives like what, you know, Raj and Srinivasa mentioned, that impact is still to be seen in the last quarter or the beginning of the next year.
Okay, sir. Thank you for the understanding and all the best for the future with us.
Thank you.
Thank you.
Thank you.
A reminder to the participants, anyone who wishes to ask a question, may press star and 1 at this time. The next question is from the line of Dhara Patwa from SMIFS Limited. Please go ahead.
Yeah. Thanks for the opportunity. Sir, I just wanted to understand, like how much time does the emerging centers take to become mature? Like, you know, when can we expect East India Hospitals to deliver margin of 15%+ ?
So-
That's my first question.
Thank you, Dhara. Sorry if I got the name wrong.
Yes, yes.
Now this is a bucket, right? Different hospitals are at a different, you know, maturity stage. I gave an example of Jaipur. Now Jaipur is already, you know, double the revenue, has, you know, started delivering EBITDA margin 25%+. Borivali similarly in Mumbai is delivering in mid-20s% EBITDA margin. Kolkata is our newest center. We, you know, expect it to start breaking even early next year and then, you know, we will continue to grow that margin. You know, 15% is probably the subsequent year, you know, following the next year, because that's our newest center.
Right. Okay. Sure, sir. I got it. Wanted to understand like, you know, 88% of our revenues comes from oncology. Do we have any approx breakup, like how much of that would be from medicines and how much will be from the surgical procedures?
Okay. Split by radiation-
Right.
You know, usually we break our business in four big buckets, right? one is your consultation and diagnostic, which is about 20% of our top line. Medical oncology, which is chemotherapy, immunotherapy, et cetera, that's about 35%. Radiation oncology is about 20% and, you know, surgical would be about 25%.
Okay, sir. That's it. Thank you. Thank you. That's it from my side.
Thank you.
Thank you.
A reminder to the participants, anyone who wishes to ask a question, may press Star and One at this time. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Hi, this is Shyam Srinivasan. Thank you for taking my question. Just one on Slide 11.
Hi, Shyam.
Yeah. Maybe I've not seen the slide before, but it seems very interesting. Doctor, can you just explain, you know, the non-metro versus metro? I think many of the other healthcare companies now are talking about going into non-metro locations, but you seem to have made a pretty decent job of it. Just if you could explain this slide, please.
Yeah. Shyam, you know, that slide, what we are trying to say is, look, healthcare opportunity in India demands supply gap, accessibility, availability, we all know about it. I think the bigger problem we have in this country is disparity, right? You know, most of our healthcare supply is in metro big cities, state capitals. The real need, you know, to provide quality healthcare, you know, bigger need to provide quality healthcare is outside big cities. I think this is where HCG has a unique business model. What this slide basically says that we have 13 locations which are tier two, tier three, tier four. You know, places like Ongole are like 2 lakh-3 lakh population. Ranchi, you know, again, 2 lakh-3 lakh population.
In an almost tier four kind of a category. You know, out of those 13 locations, you know, 11 locations we have a number one market leadership in oncology. The way we have the way the business model works is, you know, the result of our business model is, you know, out of those 13 locations, you know, we are delivering, you know, EBITDA margin in the range of 15%-28%. Some hospitals, you know, the lower side is 15% and the higher side is 28%. In terms of ROCE for these 13 locations, the range is between 15%-24%. That's because, you know, one, you know, we have a early mover advantage, first mover advantage.
Second, you know, our unit economics, we are about 20%-25% lesser cost in terms of our CapEx in these markets. These markets, our operating costs also tends to be lower. Then we go for more institutional business to drive higher volumes at relatively lower price points to make this model work for us. I think you know that if you look at, you know, all the healthcare players in India, I think HCG is probably the only one who has made its model work in different tiers of cities in India, delivering pretty much similar EBITDA margins as well as ROCE returns across our locations.
Just to follow up there, Raj, just on the payer mix which you also highlight, right?
Yes.
You take on more institutional.
Yeah.
Even government scheme patients. ROCE you're mentioning greater than 15% still, but is there no worries around receivables from the government and how do you navigate that?
Look, I think when it comes to receivables, the trick is, you know, get your processes in terms of documentation, submission on time and follow-up. Get that discipline in place. A lot of these schemes have gone now in terms of their processing online. You have portals to submit. There is better visibility coming on these channels. In fact, our DSO is consistently going down over last quarters for this particular payer mix in this market. I think on these institutional channels and we made it work for ourselves.
I think to add to what Raj mentioned, Shyam, this is Srinivasa here. Yeah, while there could be some government challenges in terms of collection, but as Raj rightly pointed out, our net DSO is kind of coming down quarter-on-quarter. That's point number one. Happy to say that, you know, this quarter ended September was our highest collection month in terms of overall receivables as well. While there are challenges, but you know, there is clear focus in terms of how we drive collection and ensure that, you know, we stay on board.
Got it. Thank you. Last question, again, just back on ARPOBs. I'm talking now only just matured center ARPOBs, right? I think remember last quarter or before we did a rationalization exercise to look at how our prices are versus competition. If you're a leader, we have taken some price increases up. Is there something that, I know it used to be.
Yeah.
A 12 month-18 month exercise, but do you think that could be a lever in the next 12 month-18 months also that you could do the rest of the portfolio where you have not done that exercise?
Absolutely. You know, just to recollect what we informed last time is we started that initiative from our Bangalore center. We are in process of rolling it out to rest of the locations. In Bangalore center alone, you know, we've had about 25 basis points-30 basis points impact, you know, on overall P&L, overall EBITDA margin of the company, by just rolling out this initiative in our Bangalore market. Now we are rolling it out as we have mentioned earlier. Srinivasa also covered it in his remarks that we are looking at about 150 basis point improvement in our EBITDA margin, you know, by end of this once we finish the rollout of the initiative. Obviously it will also help us to drive RPoP.
You know, our mix is very different, right? Because our locations are, you know, Bangalore market, Ahmedabad market, which are our core home markets, where we have dominant market position for a longer period. Our RPoP is 75+, INR 75,000, around INR 75,000 per day. Mumbai, as I mentioned, is in mid-50s. Baroda is in mid-50s. Kolkata is almost close to 50. As our centers starts getting at a higher utilization level, we'll continue to optimize mix, drive, you know, price realization, pricing as a lever, and we'll continue to increase, you know, grow our RPoP in the right direction.
Got it. Srini, just following up there. That 150 is like a 12 month-18 month journey or how should we look at that just from this activity?
We've already got some impact. We've seen that at a quarterly level. You know, early, I think first quarter of next year we'll start seeing that impact in our P&L.
Got it.
We've been expecting the full rollout implementation of these initiatives across different hospitals by end of Q4 of this year.
Got it, Raj. Thank you and all the best. Thank you.
Thank you.
Thank you.
The next question is from the line of Abdulkader Puranwala from Elara. Please go ahead.
Hi, sir. Just one question. Could you please elaborate on the status of our expansion plans at Whitefield and Ahmedabad, because if I see sequentially, the CapEx incurred this quarter, I mean, it's flattened. Just some comment on that.
Yeah. In Ahmedabad we have started the new project. The work is going on. We expect the transition to happen by October 2023. You know, that is going as planned. As you know, there are also certain transfer of technology, linear accelerator, all of these equipment. We hope that by October it will all be completed. It will be fully operational. Regarding Whitefield, we have just got the approval from the local authorities, the BBMP. The plans have been approved.
Got it, sir. Thank you.
We expect the project to be completed in about maximum two years. That is when 18 months-24 months. Once the construction work starts. Okay?
Understood. Thank you.
Thank you.
Thank you.
The next question is from the line of Naman Bansali from Perpetuity Ventures. Please go ahead.
Yeah. Hi, sir. You previously talked about some diversified revenue from various modalities. Could you please help me understand the margin dynamics in that region? That is the margin dynamics in the medical oncology, surgical oncology in that part. That's my first question, right.
See, we do not give margin dynamics by service line. That is why we give it at a consolidated level and the overall contribution margin is a good indicator of our overall business.
Okay. Yeah.
Sir, once your question is done, may we request you to mute your line for clarity, please, because of the background noise.
Yeah, sure. My second question was on the unit economics. You talked about 20% lower cost. What is the CapEx per bed or CapEx per center which you incur versus the industry?
Okay, let me put it this, as far as the, you're looking at tier two centers, right?
Yeah.
I would like to differentiate here. You know, bed capacity is not necessarily the main driver for our growth. We have four modalities OPD, diagnostic, chemotherapy, medical oncology, radiation. These are all take care or outpatient services. Only surgical largely is our inpatient. We do not, you know, that matrix is not necessarily, you know, relevant for us. However, you know, if I have to give you a ballpark, you know, our cost per bed, you know, in metro cities will be about INR 65 lakh-INR 75 lakh. And in tier two, tier three cities it will be about INR 50 lakh- INR 55 lakh for a hospital size of about 80 beds.
Okay. Got it. Thank you.
Yeah. I just want to address the, you know, the previous question that we had. See, the reason we do not give, you know, margin by modalities is because it's not necessarily a driver for margin improvement. When cancer patient walks in, we do not have a choice, you know. The modalities that you need to treat that cancer patient, it's not a choice. It depends on what type of cancer, what stage of cancer. So that's not necessarily a controllable variable for us. It's more of a, you know, it depends on what the patient's state is.
You know, it doesn't make sense to track it that way because it's not really a you know, variable that you can control or optimize or drive.
No, just to add to what Raj said, in a multidisciplinary approach what we have is the way that the team decides whether the patient should undergo chemotherapy or radiation or surgery or an integrated approach. Nearly 60% of the patients end up having multiple modalities of treatment. You cannot really break up into which is the high margin, which is no margin. We have to look at it at a consolidated level. You know, for us, what we try to look at is per new patient, what is the cost to do certain treatments combined. So obviously there are ways the contribution factor may be more from radiation. So we do look at all that, but it is not the driving force for us to do the right treatment for the patient.
Thank you. The next question is from the line of Dipti Kothari from Kothari Securities. Please go ahead.
Hi, sir. My first question was that.
Hi, Dipti.
We have been increasing in terms of revenues and margin have also extended over the last six quarters-eight quarters. However, we are still not a high PAT generating company. What is your sense on PAT going forward?
Yeah. Thanks for this question. If you go back to my earlier part of the thing. You know, I talked about, you know, PAT before Ind AS impact. Let me set the context here. You know, if you look at it, my PAT at a pre-Ind AS level is close to INR 10.5 crores. And if I adjust for the one time impact that we talked about on value creation, overall PAT at the pre-Ind AS level is INR 14 crores. Let me explain couple of nuances in this. Point number one, basically because of the Ind AS impact, the long term lease rental model that we have, you know, because of that, you know, my post-Ind AS PAT is getting depressed because of the initial year of the lease rentals, given the equalization of lease costs.
Having said that, over a period of time, especially at the midway point, this should kind of reverse basically. You got to look at the pre-Ind AS impact as far as PAT is concerned. Secondly, I did talk about the value creation activities. There is one-time cost of INR 5 crore that is sitting, which is in the EBITDA and kind of flowing into the PAT number also. If we exclude the impact of that, my PAT should look better. Last but not the least, since you asked about how is the future looking like, you know, we are currently at a tax regime of 35%. We are going to be moving to a 25% tax regime next year onwards. Putting all these factors together on a pre-Ind AS tax basis, my PAT is at about 14% growth for Q2 FY 2023.
That's the way I would put it.
Okay, sir. Thank you, sir. That helps a lot.
Thank you. The next question is from the line of Aditya Khemka from InCred PMS. Please go ahead.
Yeah. Hi. Thanks for the opportunity. Ironically, my question, sir, is exactly the opposite of the previous participant. I see we have a lot of intangibles, and obviously we do acquisitions and alliances that creates intangibles. But I don't see a lot of amortization of that intangibles. Either not amortizing or if we are amortizing, we are amortizing at a very, very slow pace. I understand the higher the amortization, the more depressed the PAT will be. But you know, as an investor, we don't really care about PAT. We care about cash flows. The cash flows has actually been really healthy for the past four years, five years, and they continue to be healthy.
My question to you is why don't we amortize intangibles at a faster pace so that our ROCE can look better and we get tax exemptions, tax break on our intangible amortization, and that helps us save cash.
Yeah.
Any company's job is to generate cash and, you know, PAT is just a number.
Yeah, I understand. It's a good point that you are bringing up. It's quite interesting that you call it out. I also appreciate the fact that, you know, you talked about, you know, positive cash flow in the last few quarters, which is a good thing. Yes. It's getting the right balance, basically. Getting the right balance in terms of, you know, amortizing the intangibles. We are not aggressive. At the same time, we are not very slow as well. We are doing it as per the law, as per the procedures, basically. Intangible comes only in the case of, you know, new acquisitions. You know, in the last few quarters we have seen, you know, we had this lab acquisition, we had the Suchirayu acquisitions.
Those have kind of created those intangibles basically. Having said that, it would be amortized on a basis which that allows as per the company's VAT as well as per the accounting standard.
Yes, sir, your accounting standard actually gives you a very large range of amortization. It is 10-50 years that you can use to amortize intangibles.
I agree.
Yeah. My point is that instead of using 50 years or 40 years, you could do it over 10.
See, our philosophy is, you know, our amortization happens anywhere between 5-8 years basically. I think that's the kind of trend that we have been doing and that is the way we would move forward as well.
Fair enough. My second question, sir, is regarding the multi-specialty and the super specialty makeup of our company. Obviously I'm keeping Milann aside here, given that it's very small in the context of things. You know, the multi-specialty hospitals, your super specialty obviously seems to be doing phenomenally well. On the multi-specialty side, what is the plan? Do we plan to remain a company which is both multi-specialty and super specialty? Or at some stage do you have any restructuring in mind for either of these verticals?
Aditya, thank you for that question. I think we stated earlier also that our strategy is to be oncology-focused organization. That's what HCG is synonymous for. That's what is our core competence. We would like to pursue oncology business going forward. Now, as a legacy, we have a few multi-specialty hospitals. Currently what we are trying to do is see how we can grow oncology specialty business within those multi-specialty hospitals. A good example of that is Bhavnagar. It was a purely multi-specialty hospital with pretty much no oncology business. Last few years we added a linear accelerator there. We started growing surgical and medical oncology. That specialty is growing there. We will do similar thing at Rajkot. You know we
You know right now we will focus on, you know, growing the oncology share of business within this hospital. That's what our, you know, current focus is.
Basically your multi-specialty setups you are trying to sort of tweak them to be more super specialty within the multi-specialty. Is that how I should read it?
Yeah. Yeah.
Why not divest those assets really?
That is worked for us in Bhavnagar, so we're trying to replicate that in other locations also.
Yeah. Raj, you could, you could actually divest those assets. If you look at the private market transactions in the hospital space, the multiples at which these transactions are happening are far higher than the cost of debt. It is actually going to be value accretive for you if you divest your multi-specialty assets, get the cash, pay off the debt and use the cash to acquire super specialty oncology assets.
Yeah. You know, Vinzajay in this regard, obviously this has been internally discussed quite a few times. Our multi-specialty is very limited. If we have to look at it diversify and everything it requires for us to maybe put more emphasis on multi-specialty. Instead of that, we've decided we'll do more specialty. We really do not have that much debt. We are looking at various models. What you have suggested is also has been discussed internally and obviously we'll continue to discuss. As I said, there is a time and place for everything. We'll look at it when the right time and see whether we should do some of these things, what you are suggesting also.
Understood, sir. Thank you for that. One last question, sir. On the CVC stake in our company, which is currently, if I'm not mistaken, around 58%. Have they shared any timeline with you as to, you know, how long they plan to hold on to the large share of the company and the fund which has invested in your company, you know, how long will they stay invested and when do they plan to liquidate and will the liquidation be one shot or multi-stage, you know, staggered liquidation? How will that work?
Yeah, this discussion has not taken place yet because it's too early, possibly. They have been with us for a little over two years now. Obviously, you know, the time horizon will be five years or longer for any private equity. They are at this point, obviously they have done well, and they have been a continued support to us in our new whatever endeavors we have taken. It is a good partnership, and at this point we want to really keep that good partnership and grow.
Understood. One last question, Dr. Ajaikumar for you. So you know, a lot of the hospitals that we meet and speak to, obviously all of them want to focus on oncology as a specialty, given the growing incidence of the disease and the lack of treatment options available in our country. My question to you is, have you explored the opportunity of doing operating and maintenance contracts with many of these, let's say, standalone hospitals which might have oncology wing, but may not be making much money or may not be doing very well in that wing because they just don't have the expertise or the knowledge or the technology to you know deal with the therapy area. That could be a very asset-light model for you because it's just knowledge-based revenue. Have you explored such opportunities?
If yes, you know, what is the kind of feedback you're getting there? What is the traction in that business model?
Yeah, you know, Aditya, in the past we have already looked at that models. We have also looked at the implant model. To begin with, I would like to say the implant models are not workable for us because we want to be an independent, dedicated cancer center. Even the asset-light model, what you talked about, is not long-lasting. The problem with this is, maybe it's the Indian DNA, where the person to whom you have got the contract at some point would like to say, "I know if we feel like we are doing good, we are generating some
Why the margin has not improved, what is the reason behind this?
Yeah. Sachin, thank you for that question. See, as we've been saying, you know, since last quarter, the value creation plan that we have rolled out, we are incurring a one-time cost. Now, that cost is, you know, largely allocated to mature centers, you know, in proportion of their revenue contribution to the total revenue. You'll have to take that away to see the impact. You know, that's one explanation. If you look at, you know, if I'm correct, you know, the graphs you are referring to, the quarter-on-quarter trend, you have a 19% growth on revenue, but only 20% growth on EBITDA, right?
If you look at, if I take away that one-time cost, that 20% will become 26%. 19% revenue growth is contributing to 26% EBITDA growth for the corresponding period. That's the difference. It's a one-time cost.
Okay. You are saying that this will go away and by the end of FY 2023 and FY 2024. We'll be able to see the full impact and full benefit of the cost.
Absolutely.
exercise.
Absolutely. Absolutely.
Yeah. Okay. That benefit would be close to 150 basis points you are saying. This 25%, whatever we are seeing in the pre-corporate margins, that will probably move to 26.5%, round about. Is that understanding correct?
Yeah. Round about. Yeah. That's at a network level.
Okay. 150 basis points you are saying on a network level.
100 basis points-150 basis points at a network level. Yeah.
My other question is related to that only. On the emerging centers, if I heard you correctly, Jaipur has been doing very well, probably operating at more than 20% or I think I heard you at 25% operating margin.
Correct.
Mumbai Borivali is also operating at a good margin levels. Where do you see the, you know, operating margin trajectory of the emerging secondary centers, which is currently at 10% level, where do you see this going in FY 2024?
You know, let me give you a trend to you know figure out how it will grow. You know, six quarters-seven quarters ago, that was at -8%. Today we are at +10%. That's the track record we have.
Right.
You know.
Yeah.
Like I said, we will continue to drive revenue growth. Yeah.
No. I am aware of the trajectory. It has been.
Right.
I mean, very steep. The point I want to understand here is I believe the major drag in the emerging centers margin is Kolkata, where you are kind of seeing a INR 50,000 kind of ARPOB levels. Eventually the emerging centers occupancy has almost touched 70% this quarter. Eventually going ahead, you know, once the occupancy level settles, then probably the margin levels will go up. That is the thought process. I was coming from there.
Yeah.
That is why the 150 basis points improvement in the network level margins look a little conservative, if I say so.
Sachin, let me clarify. 100 basis points-150 basis points impact is just on the initiatives that we have launched, right? We are driving, you know, higher than market revenue at a higher than market growth rate, right? The operating leverage will kick in. You know, our endeavor is in next 18 months-24 months to get emerging center profit start coming closer to mature center profit. That's the aspiration that we are driving for.
The total impact in margins would be lot higher, probably in the range of 300 basis points-400 basis points, right?
That's what we are going for.
Got it. Thank you. That's all from my side.
Thank you. The next question is from the line of Pallavi Deshpande from Sameeksha. Please go ahead.
Yes, sir. Thank you for taking my question. I was just a little late in joining the call. On the INR 5 crore one-time expense, if you could just elaborate who is the consultant? I think you mentioned it will continue in the balance two quarters, is that right?
Yeah. Pallavi, thank you for that question. Just to recap, end of last year, we engaged one of the Big Four to start driving operational efficiency. Operational efficiencies on, you know, multiple levers. One was strategic pricing based on our market positioning in terms of market share, competitive strength, our internal economics, utilization rates, etc. That's one component. This is more over and above the inflationary price increases that one takes, you know, every year. Second is, staffing productivity, staffing norms, dynamic staffing based on, you know, variability in utilization rates, in different hospitals across different seasons. Third is, the fixed costs that we have, the long tail of items in the P&L that we have.
You have, you know, areas of, you know, improving, you know, reducing our discounts, revenue assurance, etc. There are different levers that we are working on with the help of one of the Big Four. You know, we expect that we'll roll out all those initiatives by end of the year and this cost will go away starting from next year.
All right, sir. This, we can expect a similar cost in the second half, INR 6 crores with, what we saw in the first half?
It will start tapering down in, you know, remaining quarters of this year, and it will completely go away by end of this year.
All right, sir. Sir, secondly, you mentioned about the ARPOBs in the Mumbai property, I think. By when do we see them, you know, any timeline for it to catch up with what you have at Ahmedabad?
See that, you know, ARPOB is a function of the high-end work, complex works that you do. Your specialty mix. It's a function of your payer mix. It's a function of your market position where you can command, you know, premium and drive, you know, your mix optimization. That's why these centers are in emerging centers. Okay. Eventually it will happen, you know. Anyway, I mean, even if you compare INR 15,000 is a good ARPOB, even if you compare it with multi-specialty, there are not too many players who are more than INR 60,000 per day. I think, you know, as the centers mature it will happen. Sure we can give timeline for that. Our endeavor is to go there as soon as possible.
Right. The South Mumbai lease is for how long for that, with the Tata?
It's another, I think, another nine years, but it's mutually renewable at mutually.
That center only directs the patients to Borivali, right? It's not...
No. It has everything and, you know, more than what Borivali has in terms of certain expense. That's the only other center, other than our flagship at Bangalore, which has a CyberKnife. It also has TomoTherapy. So in many ways, the radiation technology that we have is best in class in entire Western India.
Right. Right. Okay, sir. Thank you so much, sir.
Thank you. Ladies and gentlemen.
Thank you.
Due to time constraint, we take that as the last question. I now hand the conference over to the management for their closing remarks. Over to you, sir.
Once again, I take this opportunity to thank everyone for joining the call. We will keep updating the investor community on regular basis for incremental updates on our company. I hope we've been able to address all your queries. For any further information, kindly get in touch with us or Strategic Growth Advisors or investor relations advisors. Thank you once again. Have a good day.
Thank you. Ladies and gentlemen, on behalf of HealthCare Global Enterprises Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.